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An investor owns a lot that is suitable for either six or ninecondominium units. The per unit construction costs of the buildingare $80,000 with six units and $90,000 with nine units.Construction costs are the same whether construction takes placethis year or next. Current market price of existing comparablecondos is $100,000 per unit. Their per year rental rate is $8,000per unit (net of expenses). If market conditions are favorable nextyear, each condominium will sell for $120,000 If conditions areunfavorable, each will sell for only $90,000. The risk-free rate ofinterest is 12 percent per year. What is the value of the lot?
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